Whole Foods shareholder lawsuit concerning overcharges is dismissed

Jonathan Stempel

3 Min Read

(Reuters) - A federal judge has dismissed a lawsuit accusing the former Whole Foods Market Inc and several executives of intentionally defrauding shareholders by routinely overpricing prepackaged products in its supermarkets.

U.S. District Judge Lee Yeakel rejected arguments that Whole Foods executives had to have known about the overcharges, and that they led to inflated financial results, misstatements about shoppers’ “sentiment and tolerance” for its pricing, and a lower stock price once the truth became known.

In his decision late Friday, the Austin, Texas-based judge said the allegations in the proposed class action “do not give rise to a cogent and compelling inference” that Whole Foods intended to commit securities fraud.

Shawn Williams, a lawyer for plaintiffs led by the Employees’ Retirement System of the State of Hawaii, did not immediately respond on Tuesday to requests for comment. Whole Foods did not immediately respond to a similar request.

Shareholders sued Whole Foods after New York City’s Department of Consumer Affairs revealed in June 2015 that all 80 prepackaged foods it tested from the retailer had mislabeled weights, with overcharges as high as $14.84 for coconut shrimp.

While the federal appeals court in Manhattan on June 2 said shoppers could sue Whole Foods over the mislabeling, Yeakel said this had no bearing on securities fraud claims.

Whole Foods settled the New York City probe for $500,000, following apologies from former co-Chief Executives John Mackey and Walter Robb.

The retailer is hoping the takeover by Seattle-based Amazon will help it shed its “Whole Paycheck” nickname.

It lowered some prices on Monday, cutting the cost of bananas to 49 cents a pound from 79 cents and “responsibly farmed” Atlantic salmon to $9.99 a pound from $13.99.

The shareholder lawsuit had been amended twice prior to Friday’s dismissal, and Yeakel said it cannot be amended again.

The case is Markman v Whole Foods Market Inc et al, U.S. District Court, Western District of Texas, No. 15-00681.